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Miriam R. Nemetz is a partner in the Supreme Court and appellate practice group in the Washington office of Chicago’s Mayer, Brown, Rowe & Maw. She submitted amicus briefs in Green Tree Financial Corp. v. Bazzle, Norfolk & Western Co. v. Ayers and Pacificare Healthcare Systems v. Book. The firm represented the petitioners in American Insurance Association v. Garimendi, Sprietsma v. Mercury Marine and Dow Chemical Co. v. Stephenson, and submitted an amicus brief in State Farm Mutual Automobile Ins. Co. v. Campbell. In the recently completed 2002-2003 term, the Supreme Court decided a wide array of business cases. The court’s decisions included some significant wins for business, as well as some losses. The term’s single most important business case was State Farm Mutual Automobile Ins. Co. v. Campbell, 123 S. Ct. 1513 (2003), a major victory for business in the area of punitive damages. The decision should affect not only the post-verdict review of punitive damages awards, but also the presentation of evidence and the content of jury instructions on punitive damages. The court explained that substantial punitive damages awards ordinarily will not be constitutional unless multiple aggravating factors make the defendant’s conduct especially reprehensible. Even if such factors are present, the maximum permissible ratio of punitive to compensatory damages will often be 1:1 or less, and ordinarily will not exceed 4:1. Unless the compensatory damages are slight, ratios that exceed 9:1 will be deemed “presumptively unconstitutional.” The court also made clear that state courts and juries generally may not punish defendants for out-of-state conduct or for acts affecting persons other than the plaintiff receiving the award. State Farm is required reading for anyone involved in litigating (or adjudicating) a claim for punitive damages. Businesses generally prefer arbitration to full-blown litigation and thus favor strict enforcement of arbitration agreements under the Federal Arbitration Act (FAA). In three cases construing the FAA, the court clarified the division of responsibility between the courts and arbitrators to decide threshold questions concerning the conduct of arbitration. In each case, it emphasized that only questions of “arbitrability”-which concern whether the parties have agreed to submit a particular dispute to arbitration-are for the courts, while all other “gateway” issues must be decided by the arbitrator. This approach served the interests of business in some instances, but in other cases favored plaintiffs or delayed the determination of key issues affecting arbitration. The first of the term’s arbitration decisions was Howsam v. Dean Witter Reynolds Inc., 537 U.S. 79 (2002). Reversing the 10th U.S. Circuit Court of Appeals, the Supreme Court refused Dean Witter’s invitation to decide whether the plaintiff’s claims were barred by National Association of Securities Dealers (NASD) rules establishing time limits for raising claims in arbitration. It concluded that “the NASD’s time limit rule falls within the class of gateway procedural disputes” that are presumptively for the arbitrator to decide. Later in the term, a divided court decided in Green Tree Financial Corp. v. Bazzle, 123 S. Ct. 2402 (2003), that the arbitrator should decide in the first instance whether he was empowered under the parties’ agreement to entertain a consumer class action. The court further emphasized its reluctance to construe arbitration agreements in PacifiCare Health Systems Inc. v. Book, 123 S. Ct. 1531 (2003). The lower courts had refused to compel arbitration of the plaintiffs’ Racketeer Influenced and Corrupt Organizations Act (RICO) claims on the ground that the arbitration agreements did not allow punitive damages and thus would have prevented the arbitrator from providing “meaningful relief” in the form of RICO treble damages. Observing that treble damages are not always strictly punitive, the court ruled that the arbitrator should decide whether the pertinent arbitration provisions in fact precluded the award of treble damages under RICO. Although the decision counts as a victory for business, it was a modest one: The court left for another day “the questions whether [the remedial limitations] render the parties’ agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance.” Intellectual property cases The court issued three major decisions affecting businesses’ rights to intellectual property. In Eldred v. Ashcroft, 537 U.S. 186 (2003), the court upheld the 1998 Copyright Term Extension Act, which enlarged the duration of new and existing copyrights by 20 years to the life of the author plus 70 years. Rejecting claims that extending existing copyrights overstepped Congress’ power and violated the First Amendment, the court’s decision prevented many creative works from the 1920s and 1930s from falling into the public domain. The decision obviously favored copyright holders, but disadvantaged those businesses that publish material in the pubic domain. In contrast, businesses that copy and distribute uncopyrighted works scored a significant victory in Dastar Corp. v. Twentieth Century Fox Film Corp., 123 S. Ct. 2041 (2003), when the court refused to construe the Lanham Act to protect creative works whose copyrights have expired. Dastar copied, edited, repackaged and released under its own label a video series produced by Twentieth Century Fox. The Supreme Court rejected the argument that Dastar had violated the Lanham Act by engaging in “reverse passing off”-i.e., passing off Fox’s product as its own. In the court’s view, Dastar was not misleading consumers regarding the “origin” of its product, because it literally was the “source” of the repackaged video. It further concluded that to construe the Lanham Act as forbidding Dastar’s conduct would bring the statute into conflict with copyright law, which allows copying without attribution once a copyright has expired. Finally, the court made it more difficult for holders of famous trademarks to limit the use of similar marks that do not confuse consumers. Lingerie maker Victoria’s Secret brought a trademark dilution claim against “Victor’s Little Secret,” a small retail store that sold adult videos, adult novelties and lingerie. The Supreme Court ruled that the lower courts, in granting summary judgment to Victoria’s Secret, had applied too low a standard for finding trademark dilution. Mosely v. V Secret Catalogue Inc., 537 U.S. 418 (2003). According to the court, “the mere fact that consumers mentally associate the junior user’s mark with a famous mark is not sufficient to show actual dilution.” There must be some evidence-whether direct or circumstantial-that the junior user’s mark actually reduces the value of the famous mark or lessens its capacity to identify goods and services. Concluding that Victoria’s Secret had adduced no such evidence, the court reversed. Mass torts Businesses affected by the continuing explosion of asbestos litigation suffered a double loss in Norfolk & Western Railway Co. v. Ayers, 123 S. Ct. 1210 (2003). Construing the Federal Employers’ Liability Act (FELA), which governs negligence suits against the railroads, the court ruled that asbestos claimants suffering from asbestosis may seek damages for emotional distress arising from their fear that they may later contract cancer. Although the decision applies only to FELA cases, the court’s reasoning may persuade other courts applying common law negligence principles to recognize fear-of-cancer claims-thus increasing the damages recoverable by less-seriously injured asbestos plaintiffs. As the court acknowledged, its decision will “not serve to abate today’s asbestos litigation crisis.” Deciding the second question presented in Ayers, the court also ruled that damages are not subject to apportionment under FELA, and that a plaintiff thus can recover his entire damages from any railroad whose negligence jointly caused his injuries. Less prominent defeats for companies defending mass tort suits came in Syngenta Crop Protection Inc. v. Henson, 537 U.S. 28 (2002), and Dow Chemical Co. v. Stephenson, 123 S. Ct. 2161 (2003). In S yngenta Crop Protection, the court ruled that the All Writs Act does not confer federal jurisdiction to remove state court lawsuits whose filing violates federal class action settlements. And in Dow Chemical, an equally divided court let stand a 2d Circuit decision allowing a Vietnam war veteran to proceed with his suit against the makers of Agent Orange on the ground that he had not been adequately represented in the prior settlement of a class action raising the same claims. The court also vacated and remanded for reconsideration in light of Syngenta Crop Protection the 2d Circuit’s decision that it had jurisdiction over the similar claims of another veteran whose state court action against Agent Orange manufacturers had been removed to federal court under the All Writs Act. These decisions may make it easier for plaintiffs to bring collateral challenges to class action settlements. Pre-emption cases Businesses achieved mixed results in this term’s pre-emption cases. The court concluded in three cases that federal law pre-empted state laws purporting to regulate business activities. In American Insurance Association v. Garamendi, 123 S. Ct. 2374 (2003), the court ruled that a California statute that required companies to disclose information about Holocaust-era insurance policies interfered with the president’s conduct of foreign policy and was therefore pre-empted. The court also decided, in Entergy Louisiana Inc. v. Louisiana Public Serv. Comm’n, 123 S. Ct. 2050 (2003), that Louisiana’s effort to regulate cost allocation among affiliated energy companies improperly second-guessed the system agreements approved by the Federal Energy Regulatory Commission and was hence invalid. Finally, the court ruled in Beneficial National Bank v. Anderson, 123 S. Ct. 2058 (2003), that state-law usury claims against national banks are completely pre-empted by the National Bank Act, and hence may be removed to federal court. Three cases of no pre-emption In three other cases, the court refused to find pre-emption. First, the court held that ERISA does not pre-empt Kentucky’s “any willing provider” statute-which requires managed care entities to open their plans to any doctor willing to abide by a plan’s terms. Kentucky Ass’n of Health Plans Inc. v. Miller, 123 S. Ct. 1471 (2003). Next, the court reversed a preliminary injunction that barred Maine from imposing arduous Medicaid procedures on drug manufacturers that refused to provide discounted drugs to uninsured Maine residents. Pharmaceutical Research and Manufacturers v. Walsh, 123 S. Ct. 1855 (2003). Finally, in Sprietsma v. Mercury Marine, 537 U.S. 51 (2002), the court ruled that the Federal Boat Safety Act does not displace state common law, and hence did not preclude a plaintiff from seeking to establish under state law that the absence of propeller guards rendered an outboard motor unreasonably dangerous even though the Coast Guard had decided not to require them. Business owners avoided a substantial expansion of personal liability for discrimination in Meyer v. Holley, 537 U.S. 280 (2003). Construing the Fair Housing Act (FHA), the 9th Circuit had ruled that an individual business owner could be held vicariously liable without fault for the discriminatory acts of an employee, on the theory that the owner had unknowingly breached a ” ‘non delegable duty’ not to discriminate.” The Supreme Court unanimously reversed, rejecting the view that Congress intended to expand traditional vicarious liability rules when it adopted the FHA. And in a victory for the many businesses that prefer federal to state court, the Supreme Court ruled in Breuer v. Jim’s Concrete of Brevard Inc., 123 S. Ct. 1882 (2003), that cases brought under the Fair Labor Standards Act can be removed from state to federal court. Several important business cases are already on deck for the October 2003 Supreme Court term. Among other things, the court will decide whether incumbent providers of local telephone service can be sued under antitrust laws for violating their obligations under the Telecommunications Act of 1996; whether airlines covered by the Warsaw Convention are liable for conduct during a flight that aggravates a passenger’s pre-existing medical condition; and whether employees terminated for unlawful drug use have rights under the Americans With Disabilities Act to be considered for rehiring.

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